YieldStreet's Alternative Investment Marketplace Booms In Times Of Volatility

Fintech
I write about the fintech, cryptocurrency and investing markets.

YieldStreet co-founder and president Michael Weisz

Company

When YieldStreet launched a $6.45 million offering on its marketplace, it expected a lot of investors to get in on the deal. After all, they had about seventy-two hours to digest all the important aspects of the company and the offering.

But what they didn’t anticipate was that the deal would close in under a second. “We were all flabbergasted that in less than one full second a few hundred people sold out that deal,” said Michael Weisz, co-founder, and president of New York-based YieldStreet. “That’s consistent with what’s going on. The classic frenzy is ongoing all the time.”

The explosion of fintechs over the past few years has democratized investing, opening it up to the masses. But one untapped area that YieldStreet is trying to corner is passive alternative investments.

With its investment platform, accredited investors are able to invest in everything from short term financing for a small business to a litigation financing deal. It competes against wealth management arms of the major banks for deals, charging companies and investors less in fees.

Since launching in May of 2015, it has completed about 110 deals, valued at around $560 million invested on the platform from individual investors and counts 100,000 as customers. The average investor has money in four deals at any given time. Weisz credits the red hot demand with the access it provides to what most people have been shut out of for so long. “The system is fundamentally broken,” said Weisz. “If you look around the average investor has no access to high-quality alternative investments.”

Unless an individual invests in a hedge fund or closed-end fund, which most can't access, he or she won’t have many opportunities to diversify with something that’s not correlated to the stock market. In times of heightened stock market volatility, which has been the case in recent weeks, investors crave more stable, passive investments. “As an investor, you now have access to a bunch of things you never saw before,” said Ian Sigalow, a partner and co-founder of Greycroft, the New York-based venture capital firm which last year co-led a $113 million financing round and sits on the YieldStreet board. “You should have some percentage of your net worth in cash and liquid securities, some percentage in stocks and some percentage in bonds. Corporate bonds and stocks are highly correlated and a lot of the assets in this world are not.”

YieldStreet Levels The Playing Field For Everyone

YieldStreet isn’t only trying to make it easier on accredited investors, which Weisz says represents around 14 million Americans. It plans to launch investment opportunities for non-accredited retail investors this year. It’s also trying to help companies that are looking to raise capital. When enterprises reach a certain level they can no longer rely on family and friends to provide capital and turn to hedge funds and private equity firms. They are often at the mercy of a handful of investors, which can mean high fees and terms that are subject to changes. Not so easy to do when it’s hundreds of investors financing a debt offering. “Through the marketplace a lot of people own part of it. In many ways its more reassuring because your company doesn’t have one boss,” said Sigalow of Greycroft.

The market size opportunity isn’t lost on the venture capitalist either. While there is a slew of direct to consumer fintechs, not many have gone into niche areas such as alternative investments because of the complexity behind it. Add a huge market to the mix, and it's not surprising Greycroft co-led the financing round. “The value of every publicly traded stock in American is maybe $40 trillion,” said Sigalow. “The value of the credit universe is north of $100 trillion.” Like most startups executives, Weisz isn’t willing to offer up a valuation for the fintech but said the company is growing at a “tremendous rate” and that within the next year or two, once it has more than $1 billion under management, a unicorn valuation will be more than justified.

Retail Investors In Its Sights

YieldStreet is focused on serving accredited investors but it won’t be long before it offers products for retail investors as it expands its wealth management business. In what may be a glimpse into the future, the company recently launched a digital wallet savings product that pays 2% interest. It originally yielded 1.6% but when the Federal Reserve raised interest rates, YieldStreet got a better deal. It’s not only YieldStreet customers who can access it. Anyone who wants to deposit money with the startup, even those who can’t invest, are welcome. “The banking world has made every effort to make it difficult for customers to get value from putting money there,” said Weisz. “Our whole approach is customer first. Thirty basis points isn’t going to make us or break us.”